3 Reasons To Refinance Your Mortgage
Deciding to refinance a mortgage is a big decision. Most homeowners know the option exists, but many never take action. They wonder if it will save enough money to make it worth the time and effort.
We get it. Big financial decisions can feel stressful. But, when it comes to mortgages, the path of least resistance could cost you a lot of money. Plus, saving money isn’t the only reason homeowners refinance.
To help answer common questions, we’re rounding up a few reasons to refinance in today’s article.
Reason #1: Get a Lower Rate and Monthly Payment
The most common reason homeowners refinance their mortgage is to get a lower interest rate. When you purchased your home, your mortgage was financed at whatever the going rate was at the time. Rates for a 30-year, fixed-rate mortgage have varied widely, reaching highs of over 18.00% Annual Percentage Rate (APR) in the early 1980s and lowering to approximately 7.00% APR in late 2023.
Most people know that the difference between a loan financed at 18.00% APR and one at 7.00% APR is vast. However, there is also a big difference between a mortgage at 7.00% APR and one at 6.00% APR.
For example, let’s say you financed $200,000 in the form of a 30-year, fixed-rate mortgage. At 7.00% APR, you’d pay over $279,000 just in interest. That same mortgage financed at 6.00% APR, though? You’d pay around $231,600 in interest. That seemingly small difference in rate would mean $47,400 in savings!
Curious about what you could save? Try our Mortgage Refinance Savings Calculator to plug in different rates and see the savings!
Refinancing to a lower rate could also help lower your monthly mortgage payment. And, depending on the rate difference, it could be substantial. Who couldn’t use a little extra cash each month?
Reason #2: Change to a Different Type of Mortgage
Not all mortgages are created equal. There are fixed-rate, adjustable-rate, rapid refi mortgages, and more. Each type has its pros and cons, and the mortgage you took when you purchased your home may not be the best option for you now.
For example, let’s say you initially took a 30-year, fixed-rate mortgage. Since you purchased your home, you’ve substantially increased your income, and you’d like to pay off the mortgage sooner. Refinancing to a 15-year, fixed-rate mortgage could be a great option. Although financing to a shorter term generally increases your monthly payment, it will decrease your rate, save you money on interest, and allow you to pay off the mortgage sooner.
The same is true for adjustable-rate mortgages (ARMs). Maybe an ARM made sense when you bought your home, but now you might want to consider a fixed-rate mortgage, allowing you to “lock in” a lower rate until your mortgage is paid off.
Reason #3: Use Your Equity
Have equity — and plans? You might consider a “cash-out” mortgage refinance. With this option, you can take out a new mortgage that’s worth more than your current mortgage and receive the difference in cash.
Much like a home equity loan, you can use that cashed-out equity for home repairs or renovations, debt consolidation, unexpected expenses, and more.
Learn more about the differences between a cash-out refinance and a home equity loan.
Ready To Start Your Refinance?
Whether you want to lock in a lower rate, change the terms of your mortgage, or cash out your equity, we’re here to help. We offer a variety of Mortgage Refinancing options at affordable rates so you can choose what works best for you and your budget.
You can also book a call with one of our team members, and they’ll be happy to answer your questions and help you get started.